As Banking Union Stalls, German Minister in Whirlwind Brussels Visit

When Europe’s most powerful finance minister makes an unscheduled trip to Brussels to meet a handful of European lawmakers, you can be sure that something is amiss.

And indeed, Wolfgang Schäuble’s unusual pilgrimage to Belgium on Monday comes at another tricky juncture for the euro zone: Its much-vaunted banking-union project, billed as the ticket out of its five-year-old financial crisis, is at risk of stalling, amid opposition from the European Parliament to elements of a new system for wind down failing banks.

Governments have been scrambling to complete the final leg of banking union — a Single Resolution Mechanism that will centralize control of resolving sick euro-zone lenders — before Parliament dissolves ahead of elections in May.

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After months of haggling, finance ministers finally struck a deal among themselves in December. But the deal must be ratified by European lawmakers, who have agreed on their own version of the proposal and appear unwilling to play ball.

“The Council [which represents EU governments] thinks Parliament will just roll over, but at the moment there is a majority in Parliament to not reach a deal,” said Sharon Bowles, who chairs the Parliament’s powerful economic-affairs committee.

The disagreement centers on a decision to create a new intergovernmental treaty that will allow national bank-resolution funds to be gradually merged into one European pot over 10 years. The move aims to assuage German concerns that a common pot of money would violate existing EU treaties. But crucially, the new treaty would fall beyond the European Parliament’s jurisdiction.

“There is an institutional problem of having an important piece of legislation carved out [that] touches not marginal issues but the core of functioning of the system,” said Elisa Ferreira, Portuguese Socialist who is leading negotiations for the Parliament on the SRM dossier.

With just six weeks left to reach a compromise, according to Ms. Bowles, Berlin seems to be getting restless.

Monday’s meeting, with five key lawmakers, was arranged at Mr. Schäuble’s initiative, according to Sven Giegold, a German who represents the Green party in the talks and who attended Monday’s meeting. The other MEPs in attendance were Ms. Ferreira, Sylvie Goulard, Corien Wortmann-Kool and Vicky Ford, all of whom represent their parties in negotiations on the SRM.

“This is the first time I have seen this in financial matters,” Mr. Giegold said, referring to the minister’s visit. The discussion, which lasted about an hour and a half, was “frank and open,” although not a lot of progress was made, he said.

Mr. Schäuble’s aim was to “explain Germany’s position and clarify uncertainties,” according to an EU diplomat.

The meeting is yet another expression of Berlin’s deep concerns over the Single Resolution Mechanism, which it worries could put German taxpayers on the hook for bank failures in another country.

Germany has fought fiercely against the creation of a centralized system that would cover all euro-zone banks and be financed by a common pot of money — as advocated by the European Commission, European Parliament and countries such as France. Berlin pushed instead for a network of national authorities and resolution funds — and ultimately got much of what it wanted.

Under the deal struck by finance ministers, the single resolution mechanism will be responsible for just the 130 biggest euro-zone banks and 200 or so cross-border banks, though it will have the right to intervene in any of the about 6,000 euro-zone lenders if it sees the need.

Governments will build up national resolution funds by imposing levies on banks, and will sign a separate treaty that will allow these funds to be gradually merged into one European pot containing around€55 billion ($75 billion) over 10 years.

Besides the creation of a separate treaty, MEPs are also worried about the complexity of the decision-making process, according to Ms. Ferreira. Under the current deal, decisions will be prepared by a single resolution board, made up of representatives from euro-zone governments plus five permanent officials. But controversial board recommendation will have to be approved by EU finance ministers, a procedure that critics say could hold up difficult decisions.

The arrangement doesn’t guarantee that the system will function effectively or be free from political interference, Ms. Ferreira said.

Lawmakers are also concerned about the continued existence of national resolution funds, which they say fails to protect national governments from crises in their banking sectors.

While Monday’s meeting bore no immediate fruit, there was “some value” in understanding where the two sides stood, according to Ms. Ferreira. “It was a very nice gesture,” she said.

But she stressed that lawmakers are prepared to let negotiations slide into the next Parliament unless national governments show more willingness to compromise. “If the Council doesn’t move, we see no room to let go,” she said.

Still, Mr. Giegold said he has “often seen Parliament surrendering” under pressure from national governments, even if this time lawmakers seem to be strongly united.

About Real Time Brussels

The Wall Street Journal’s Brussels blog is produced by the Brussels bureau of The Wall Street Journal and Dow Jones Newswires. The bureau has been headed since 2009 by Stephen Fidler, who was previously a correspondent and editor for the Financial Times and Reuters. Also posting regularly: Matthew Dalton, Viktoria Dendrinou, Tom Fairless, Naftali Bendavid, Laurence Norman, Gabriele Steinhauser and Valentina Pop.